Heather's Homework

Efficiency is the allocation of resources in a way that maximizes the total surplus for everyone in society. It results in consumers feeling like they saved money, and producers feeling like they made a profit that is worth their while. Both consumer surplus and producer surplus can be measured with a demand curve. The surplus is the difference between the price they are willing to pay/ provide and the price they are able to purchase/sell. It basically measures how much the deal benefits them. These surpluses are an important factor in determining market equilibrium because it results in the resources being allocated to the members who value it most, as measured by price. Like my dad used to say, "It's only worth as much as someone is willing to pay". Market efficiency should not always be the goal of policy setters. For example, it would be unwise to try to maximize the black market for slave labor because that does not contribute to a society with equality. However,...

The first article about Venezuela illustrates how a price ceiling limits potential profits, which changes incentives for producers, resulting in a decrease in supply. Not only that, but consumers are more likely to hoard because the item is forced to sell at a price below equilibrium. The combined effect is that a shortage occurs because the supply is less than the demand. The market cannot correct itself unless the government lifts its policies. The letter to the editor put it well, saying " By preventing prices from telling the truth about underlying conditions of supply and demand, such controls spread economic lies."  This in turn causes people to behave in ways that do not align with reality and could potentially cause the problems to become worse. The last article references hyperinflation, which is the phenomenon that occurs when the supply of paper currency is rapidly increased. As the supply increases, the currency loses its value, and it takes more to buy t...